I am a mechanical engineer and Six Sigma Black Belt by training, and have come to love the beautiful game in my adult life. I turned to my numerical training after becoming a Seattle Sounders FC and Arsenal supporter in 2009 in the hopes of accelerating my understanding of the new game I loved. I've been writing my own blog for over two years, and have written for such outlets as "The Tomkins Times", "The Transfer Price Index", and Howler Magazine. My goal is to advance the understanding of the English Premier League and Major League Soccer through numerical means.

MLS Payroll Shows Steady Improvement, But Still Not World Class

These fans deserve far better than 0 points in 9 games from the 3rd most expensive payroll in MLS.

The MLS Players Union released the results of their semi-annual survey of player wages that provides the first glimpse of the economics behind the 2012 season. The survey is one of the unique benefits of the closed league structure and its collective bargaining agreement, as most other leagues’ payroll numbers are only available at the club level at best. While there are some who question the accuracy of past surveys (was Mauro Rosales really only earning $42k during the 2011 season?) with rumors of sweatheart deals outside of the clubs being rampant, these are the best numbers that are publicly available. The accounting of wages provided by the players union provides a useful comparison of the growth in compensation over the years while also displaying just how far MLS has to go before its commissioner can consider it a world class league.

As the data is provided on an individual player basis, the first way to look at it is to consider how the typical player’s wage has changed since the first reliable wage data became available in 2006. As the league’s designated player rule provides some pretty significant positve skewing in the distribution of data points, the median rather than the average value is used as an estimator of central tendency for comparisons between seasons. The graph below shows the median salary, year-over-year change, and total increase over time (inflation factor) through 2012.

After coming down slightly in 2011 due to the addition of two new teams and allocation of players on each team, the median wage has increased 6% in 2012 to a little over $84,000. This represents a 68% increase in the median wage over only six seasons of play ($50,125 in 2006), and compares very favorably with the median US income which has fallen by 7% over the last decade. While the median pay of an MLS player certainly lags the pay found in the major North American team sports, it is becoming increasingly possible for an MLS player to earn an upper middle class income while playing the sport they love. This fact in-and-of-itself should be considered a positive sign for a league that was on death’s doorstep only 10 years ago, and is now somehow able to provide its players steadily increasing wages during challenging economic times.

Another way to look at individual player wages is to ask how hard the players are working for their income by adjusting the data to a per match basis. This is especially key in MLS, as the seasons within the sample have ranged between 30 and 34 matches in length. The graph below provides similar data as the first graph, but on a per-match basis.

The addition of two new teams and the resultant four additional matches in 2011 lowered the median player’s per match pay by more than $700 (-24%). The league’s decision to not run a balanced schedule in 2012 and keep the season to 34 matches led to a modest recovery in per match pay to nearly $2500. Had the purists won out and the league gone to a balanced 36 match schedule the median per match pay would have held steady with the 2011 numbers that were at $2340. MLS can add that benefit to the more traditional ones they tout regarding an unbalanced schedule. Given the increase of two matches more per season between 2006 and 2012, the overall improvement in per match median wage has been 58% over six years.

Team payroll is the biggest factor in determining clubs’ finishing positions in the European leagues. The same cannot be said of the salary capped MLS where team payrolls are fare more tightly grouped and any teams that standout in terms of wages are doing so with only a few players with large designated player contracts. Nonetheless, it’s useful to roll up the player wage data for each MLS team to understand which teams are getting better return on the money they are spending. The graph below provides just such a view, with data for each team from every season (gaps in bar graphs within seasons represent expansions teams that had yet to be added).

By 2012 there were six teams over the $4M mark in total payroll – DC, Los Angeles, New York, Portland, Toronto, and Vancouver – which is a 50% increase over the four that were above that mark in 2011 (DC and Portland are the new additions). Another two clubs, Montreal and Seattle, are less than $60k (or one median player contract) away from crossing the $4M threshold as well. This is reflective of the increased use of the designated player rule, which is now used by 13 of the 19 teams in the league. Using this rule allows the club to only count the first $350,000 of the player’s salary towards the cap if they’re 23 or older. The salary cap hit decreases as age also decreases, providing an incentive for teams to invest in young talent and develop it within the league before the player takes offer for bigger competition and pay in another part of the world.

At the top end of the league New York has overtaken LA in what seems to be a seesaw battle for the top payroll in MLS. Both clubs reduced their payrolls between last season and the start of this one, with the biggest reduction coming via David Beckham’s latest contract with the Galaxy decreasing his annual pay from $6.5M to $4M. However, as was pointed out earlier payroll does not correlate to success in MLS. LA currently sits at the bottom of the Western Conference having earned less than a point per game at the time of this writing.

Perhaps the bigger exemplification of abject failure considering payroll expenditures can be found in Toronto. There are few teams with as passionate a fan base as Toronto, but the club’s form has always failed to live up to the supporters’ expectations. Consistently finishing in the bottom half of the Eastern Conference their first few years in the league, the team set about attempting to rectify the situation with significant investments in personnel. A 25% increase in payroll from 2010 to 2011 saw the club move the wrong direction from 5th to 8th in the table. Another 27% increase in payroll this year has seen them set a new record for futility to start a season – zero points from nine matches. The problem in Toronto isn’t a lack of spending, it’s on what the money is being spent. Perhaps the front office needs to look to teams like Houston, Real Salt Lake, and San Jose for guidance on how to succeed on a lower-than-median wage spend.

There was a fear when the designated player rule was introduced in 2007 that it would might lead to league imbalance and greatly erode parity. The reality has been that a team with a designated player did not win the MLS Cup for the first four years of the rule’s existence. It wasn’t until 2011 and the LA Galaxy with their three designated players – David Beckham, Landon Donovan, and Robby Keane – that a team using the rule won the league’s ultimate prize. So even though the designated player has had limited effect on MLS Cup success, what has its effect been on the distribution of league payroll? One way to visualize this is to use a box plot. It can visually communicate the spread and centrality of data far more effectively than a table of summary statistics. A box plot of team payroll by season is provided below.

It appears that the concern regarding the disparity in team pay growing under the designated player rule was well founded. The immediate impact of the rule in 2007 was to more than double the maximum team wage bill via the signing of David Beckham in LA, as well as a nearly quadrupling of the interquartile range (IQR) of payrolls (the middle 50%). Things settled down a bit for two years, but then took off again in 2010 with the signing of Thierry Henry by New York and the league realizing its widest IQR to date. Since then the use of the designated player rule has been expanded and modified leading to the number of teams using it to increase. All of this has contracted both the league’s maximum payroll as well as team wage IQR, which is now back to historical norms. However, the balance has definitely shifted to teams with higher payrolls, with the positive skew denoted by the larger third quartile (green) box and long positive whisker in 2012.

So how does the league stack up on a whole when it comes to payroll? Yes, the league has expanded by six teams and has four more roster slots per team, so it’s not exactly an apples-to-apples comparison. Still, a comparison of total league payroll is a useful way to understand how much is financially committed to the players who show up to play each match. The graph below provides a plot of total MLS payroll and number of players from 2006 through 2012.

With the addition of Montreal Impact and the 6% increase in median player wage, MLS has now increased total league payroll from $85M in 2011 to just shy of $91M in 2012 for a 7% year-over-year increase. This is built on a 4.7% increase in the total number of players which now stands at 525. Overall, the league has increased total payroll by 273% and the total number of players by 71% since 2006.

Finally, while no one expects MLS to compete with the likes of the EPL, there is a useful comparison to be made with the goal of understanding just how far MLS has to go on the world stage. The graph below provides a comparison of median team/club wages from both leagues, as well as their percentage change from year to year.

The difference in space between the solid lines on the lower half of the graph demonstrates in absolute terms just how much of a gap in pay there is between the typical MLS and EPL sides. By 2011 the typical EPL club had a payroll of $89.5M (£57M), while the median MLS team wage bill was $3.5M. That makes the median wage bill in the EPL nearly 26 times more expensive than the median MLS wage bill. To go back to the league expenditures in the previous graph, the comparable figure from the EPL is $2,439M (£1,528M) which translates to a nearly 29 times more expensive league wage bill. Is it any wonder that the best players end up leaving MLS for leagues like the EPL? Certainly the pay is better, but the higher overall pay is also indicative of the talent and quality of play as the market for soccer players is extremely open and effecient.

That’s not to say that MLS’s current economics don’t have their benefits. With the TV contracts and internationalism of the modern European game has come a depersonalization of the relationship between the club and the supporter. In the US where the MLS’s TV contract is fractions of pennies on the dollar of the EPL’s contract, the need to generate revenue outside of TV contracts has led to an increased focus on the fans. This has led to the wonderful flurry of soccer-specific stadiums that have been built into the cities that the MLS teams represent. These stadiums attract followers of an increasingly urban sport into the heart of the city where the communal nature of being a soccer supporter is indulged via bars, restaurants, public displays of team fealty, and even using public transit while wearing team colors. Such stadiums provide for a unique communal experience not found in other American sports and are found more commonly in Europe.

Beyond the stadiums, limited revenue and the need to retain a firm connection with the few fans MLS clubs have has led a several of them to adopt very different approaches to club interaction with the public. Perhaps the most extreme example is the Seattle Sounders, who part-owner Drew Carey insisted be governed in a way similar to some of the finest clubs in Europe. Listen to Carey explain the franchise’s approach to governance and fan engagement starting around the 11:50 mark of this video, and then hang around long enough to hear the discomfort in the voices of the representatives from the other major sports on the panel. It’s this sort of respect for the fans that allows Seattle to pack 39,000 people into each-and-every home match and generate the revenue they desperately need to run their operation. It’s also a unique opportunity for MLS clubs to establish firm bonds with fans that are tired of the impersonal nature of the United States’ four major sports.

The MLS may still have a long ways to go in its goal of becoming a world class league. It will be a slow build to get there, and it may take some stumbles or poor reactions to unforeseen events by other leagues to make the big shift in the global soccer scene that would be required for MLS’s complete ascendence. In the meantime, the league is achieving steady growth in player compensation that now makes it possible for most players to make a livable wage and yet continue to allow fans to be able to relate to the players they watch on the pitch every week. That’s something the entire league – its management, its teams, and its players – should all be very proud of given its survival was in doubt only ten short years ago.

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